Bond Malaise

Thrugelmir

Deleted_User said:

We could say: inflation is going to get worse, or interest rates will rise, but they're predictions about risk, not a statement of verifiable fact like a standard deviation. Similarly, their reward from now forward can only be speculation; so to say they have lower reward is open to challenge in my view.

Central Banks have been manipulating the price of bonds.  They have been buying humongous amounts of bonds.  That jacks up the prices and lowers yields.  

There's been a huge issuance by Central Banks due to liquidity issues caused in the banking system by the GFC, and subsequently by the pandemic. Not as black and white as you are suggesting. The market is still required to buy a considerable amount of stock, and it's the market that sets the price at auction. 

JohnWinder

We've been tossing around whether bonds are suitable investments just now, and also whether corporate bonds are a better choice than government bonds.

If you look at the return charts of corporate bonds they seem to act very much like ?30% equity and ?70% government bonds.

That was plain wrong, on my part. I should have referred to junk, or high risk bonds. The reason is below.

For these reasons I am happy to hold some corporate debt funds as part of my well diversified income portfolio.

I was satisfied with that, written by someone else, by the argument they made. But I suggested it wasn't worth complicating a portfolio for little gain. Then I had a look at portfolio visualiser, and compared a 70/30 portfolio of government bonds with one containing corporate bonds, spanning >40 years.

The 70/30 with government bonds, whether they were intermediates (compared with 'corporates') or long term compared with long term, came out ahead in annual returns, standard deviation, Sharpe ratio, biggest fall in a crisis. True, the differences were very small, the graph lines track each other extremely closely over 4 decades, sometimes one a bit ahead of the other or vice versa, but the government bond portfolio wasn't a second rate choice.

That's not to say it's the future, and it's US data. But other factors like fund cost, tracking error etc start to look pretty important compared to 'corporate of government bonds?'

Albermarle

Considering the negative views currently surrounding bonds ( title of the thread - Bond Malaise) I was surprised to see when idly going through various funds available in one of my pensions, that most of the bond funds I checked, seemed to have gone up in price during the last few weeks by around 2 or 3 % ( although still mainly negative YTD) .
It was not a scientific study, but the trend seemed pretty clear and a bit surprising .

Thrugelmir

Albermarle said:

Considering the negative views currently surrounding bonds ( title of the thread - Bond Malaise) I was surprised to see when idly going through various funds available in one of my pensions, that most of the bond funds I checked, seemed to have gone up in price during the last few weeks by around 2 or 3 % ( although still mainly negative YTD) .
It was not a scientific study, but the trend seemed pretty clear and a bit surprising .

Generally I've experienced falls in debt related investments as expectations of a move in base rates has become baked in. 

US Treasuries did firm up after a temporary stay was agreed with regards to the debt ceiling. 

[Deleted User]

Albermarle said:

Considering the negative views currently surrounding bonds ( title of the thread - Bond Malaise) I was surprised to see when idly going through various funds available in one of my pensions, that most of the bond funds I checked, seemed to have gone up in price during the last few weeks by around 2 or 3 % ( although still mainly negative YTD) .
It was not a scientific study, but the trend seemed pretty clear and a bit surprising .

The concern isn’t about a week or a year.  The concern is that if I buy a 10 year government US, UK or Canadian bond today, there is a very high probability of losing and low of gaining money in 10 years’ time.  In real terms. Short term moves are impacted by market sentiments, newspapers, Elon’s tweets and institutional accounting cycles.  Long term returns for bonds are based on YTM. 

And thats a problem.  My investment policy calls for asset diversification but only among assets with positive expected return.   I have not bought my country’s bonds since Jan 2020.  Although the yields are back to the same level, inflation is very different. I would need YTM to exceed expected inflation to start buying. 

DairyQueen

No 'Bond Mailaise' here.

Hamish Baillie (Ruffer) on Linkers, Crypto, Inflation, Gold and other asset classes.

He is 'interested' in various (unpopular?) asset classes. Worth a listen.

https://www.investorschronicle.co.uk/podcasts/2021/10/27/hamish-baillie-financial-repression-is-going-to-be-the-path-forward/?xnpe_tifc=hFndxdbXhuxX4DE_4kbZhMpsafeWaeiWhFW.RkUZRfUrhfeDEkUZnkLvEkJLRfXcbdScEfASh.njxdHphFL_4FzlOkHj41TT&utm_source=exponea&utm_campaign=IC%20Trader%20email%2029%20October%202021&utm_medium=email

MarkCarnage

DairyQueen said:

No 'Bond Mailaise' here.

Hamish Baillie (Ruffer) on Linkers, Crypto, Inflation, Gold and other asset classes.

He is 'interested' in various (unpopular?) asset classes. Worth a listen.

https://www.investorschronicle.co.uk/podcasts/2021/10/27/hamish-baillie-financial-repression-is-going-to-be-the-path-forward/?xnpe_tifc=hFndxdbXhuxX4DE_4kbZhMpsafeWaeiWhFW.RkUZRfUrhfeDEkUZnkLvEkJLRfXcbdScEfASh.njxdHphFL_4FzlOkHj41TT&utm_source=exponea&utm_campaign=IC%20Trader%20email%2029%20October%202021&utm_medium=email

Quite an interesting listen. I agree with most of what they say on secular inflationary pressures, and financial repression. 
However, they are certainly quite bearish on conventional bonds though. Interesting and I think good argument for holding long duration IL bonds with a derivative overlay which will protect to a degree against a rise in nominal rates. 
Not sure that I agree with the 'rationale' for holding Bitcoin (now sold). It sounds a bit like FOMO to me.....as a shareholder I was quite unhappy when they bought it, and made my thoughts known, and lot happier when they sold it. 

Thrugelmir

DairyQueen said:

No 'Bond Mailaise' here.

Hamish Baillie (Ruffer) on Linkers, Crypto, Inflation, Gold and other asset classes.

He is 'interested' in various (unpopular?) asset classes. Worth a listen.

https://www.investorschronicle.co.uk/podcasts/2021/10/27/hamish-baillie-financial-repression-is-going-to-be-the-path-forward/?xnpe_tifc=hFndxdbXhuxX4DE_4kbZhMpsafeWaeiWhFW.RkUZRfUrhfeDEkUZnkLvEkJLRfXcbdScEfASh.njxdHphFL_4FzlOkHj41TT&utm_source=exponea&utm_campaign=IC%20Trader%20email%2029%20October%202021&utm_medium=email

Funds managers manage funds under given remits. Investors still need to consider their own objectives and timeframes. When considering whether an investment meets their particular requirements.